by Bryce Edwards

19 March 2007

[political finance] Party finance reform in the UK - more of the same

Party politics in the UK is about to undergo a 'radical overhaul' of its system of party finance, but the mechanisms used will be just 'more of the same'. These reforms could have significant influence on the NZ system, which in parallel shares many of the problems and weaknesses of the UK system and is also facing imminent reform. Some analysis of the proposed UK reforms is therefore of some importance to NZ - and shows that, as usual, reform is being directed in a way that will once again simply favour party hierarchies and make party politics even more divorced from civil society. [READ MORE BELOW]

Three basic areas of reform has been suggested in the long-awaited report commissioned by the British Labour Government: caps on donations, limits on party spending, and significant increases in state funding of the parties.

Caps on donations

The report by Sir Hayden Phillips advocates a new cap on donations to parties of 50,000 per donor. Both Labour and Tories support such a cap, but they differ over whether institutions should be bound by this as well as individuals. Labour is traditional reliant trade union donations which net the party about £8m per year from £3 per union member, who can currently opt out if they wish. The new report suggests that such a system could continue only if there was total transparency - meaning that union members would have to decide to 'opt in' rather than the current system of opting out if they don't want part of their fees going to the party. Unions say that the proposed system would kill the link with their party.

Limits on spending

Current limits on party spending apply only to the 12 months prior to a general election (in contrast to the 3 months in NZ). The report says this 'loophole' means that huge spending can occur during other parts of the election cycle, and therefore proposes a 'continuous' spending limit. It thinks spending can be reduced by about £20m for each main party. Labour and the Conservatives can probably find agreement here too - just as the US and USSR once found benefit for themselves in halting the crippling 'arms race'. But ultimately, placing limits on spending is unrealistic, as it simply pushes parties to find advantage over their competition by finding new ways around those limits, whether by legal or illegal means.

State funding

The new report advocates a huge boost in state funding for the parties of about £23m. Each party would receive 50p each year for each vote they received at the previous election. A further 25p would be provided for votes in elections for to the legislatures in Scotland, Wales and the EU. Furthermore, the state would also give up to £5m to each party to match private donations funneled through the Electoral Commission (or other public system). In return the parties would need to produce annual reports on how they had spent the money.

Interestingly, the Guardian's party finance reporter, David Hencke, says he is skeptical (as I am), about providing state funding to parties:

Political parties do not have a God-given right to exist - and further taxpayers subsidies will just increase the status quo and make it more difficult for new parties to break into the system. If parties cannot get enough voluntary support from the public, they hardly deserve to be bankrolled by increasing sums from the taxpayer.

Furthermore, it has to be asked: do political parties really need even more money from the state to hire spin doctors and put out more billboards and glossy leaflets? Edward Pearce, writing in the Guardian, says no. After discussing the uselessness of such spending, Pearce says a 'political party could do the job it actually needs to do on £5m across a parliamentary term'.

The Electoral Commission in the UK has also received flak about its failure to operate as an effective watchdog over the recent scandals of Cash-for-Honours, or the parties obtaining hidden donations by getting uncommercial loans from supporters - see the Guardian article The watchdog that failed to bark. According to the writer, David Hencke, 'the commission repeatedly failed to provide advice on exactly what a commercial rate of interest was - and therefore, parties can hardly be accused of breaking the law if no one provided them with proper guidedlines.' Furthermore, the commission was warned about this issue in the run-up to the election by party finance expert Michael Pinto-Duschinsky who asked the commission to clarify its position.

And it is not just the Sir Hayden Phillips report that has criticised the commission. Recently a report from the Committee on Standards in Public Life describes the commission as having 'a lack of courage, competence and leadership' in its role as regulator of funding. The committee 'said the commission should be stripped of responsibility for constituency boundaries, electoral policy and encouraging people to vote so it could focus on its core functions. A new compliance unit should take investigative action on party funding and campaign expenditure'. Likewise the more recent Phillips report advocates that the Electoral Commission 'should drop their role in promoting democracy and take a tougher line in monitoring and policing political funding'.

The NZ Electoral Commission may be watching the fate of its counterpart with some trepidation. After all, the NZ commission, too, was seen to fail to deal adequately with some of the controversies over party finance at the last election - especially over the misuse of parliamentary funding, the breach of the limits on election spending, and the campaigning to support National by the Brethren church. This is not to say I think that the Electoral Commission did fail in its duties, but merely that there is a growing feeling that it is either not up to the job or that it isn't being given the tools and resources - and ability to impose sanctions - to do more. The most blatant example of the commission's toothlessness was following the Auditor-General's revelation that most parliamentary parties had misspent parliamentary on the 2005 general election. The Electoral Commission wrote to the parties to remind them that because this spending had come to light they should therefore revise their statutory election expenses report. Only National, Act, and Labour replied - all declining the request, which made a mockery of the laws. And the Electoral Commission had no power to do anything about the breach. However, as I've argued elsewhere, I think we should be very wary of making such an unelected office more powerful over the fragile party system.

It'd be interesting to know if NZ's Electoral Commission gives the parties details of how to loans from supporters should be treated in terms of donations. First, to make the current rules operative, the parties would need to be told what commercial rates are so that any non-commercial element can be considered a donation. Second, parties would need to be told what to do if loans are converted into donations (ie not paid back).

The whole system of regulation becomes a rather complicated issue. And it has to be asked if all this intervention is really desirable or even effective. Ultimately, the prime law of party finance law will inevitably kick in regardless of how the UK or NZ systems are reformed: 'Any rule you put into place to correct on problem will eventually give rise to another problem'.

Comments

[political finance] Party finance reform in the UK - more of the same

Party politics in the UK is about to undergo a 'radical overhaul' of its system of party finance, but the mechanisms used will be just 'more of the same'. These reforms could have significant influence on the NZ system, which in parallel shares many of the problems and weaknesses of the UK system and is also facing imminent reform. Some analysis of the proposed UK reforms is therefore of some importance to NZ - and shows that, as usual, reform is being directed in a way that will once again simply favour party hierarchies and make party politics even more divorced from civil society. [READ MORE BELOW]